Recent developments and macroprudential policy update

The Austrian banking sector further increased its profit in the first half of 2023 despite fading momentum in loan growth

The largest banks in Austria are required to hold a capital buffer for other systemically important institutions (O-SII buffer), which reflects their role for the financial system and the wider economy. The O-SII buffer is prescribed for banks whose malfunctioning or failure may trigger a systemic risk that could entail serious negative consequences for the financial system and the real economy. Systemically important institutions in Austria are identified based on the guidelines of the European Banking Authority (EBA) by considering a bank’s size and other factors such as its complexity and interconnectedness. ¹ Currently, seven banks at the consolidated level and eight banks at the unconsolidated level are identified as systemically important institutions and hold an O-SII buffer between 0.5% and 1.75%. The next periodic evaluation of this buffer will take place in 2024.

The Austrian banking sector earned a record profit, mainly due to higher interest margins. Austrian banks continued to increase their profits in the first half of 2023, supported, among other things, by rising policy interest rates on deposits in riskless overnight central bank accounts. Compared to the same period last year, they more than doubled their profits to EUR 7.3 billion (see chart 2). With the net interest margin amounting to over 2%, Austrian credit institutions expanded their net interest income by more than 40% over the last 12 months. High inflation, on the other hand, also led to an increase in administrative costs and wages in particular. Impairments on equity participations, which weighed on last year’s results, no longer had a significant impact on profits, while loan loss provisioning was only marginally higher than last year.

Improved operating efficiency pushed Austrian banks’ return on assets well above the European average in the first half of 2023. Rising income and lower expenses raised operating efficiency. The consolidated cost-to-income ratio of the Austrian banking sector improved to 50% in the first half of 2023. Provided that profits stay on a similar course in the second half of the year, Austrian banks will generate a consolidated return on assets of 1.3%. The comparative figure for the European banking sector would be 0.7%.

Due to rising interest rates and banks’ stricter lending conditions, bank lending is losing momentum in Austria. Companies’ short-term financing needs for inventories and operating resources remained at an elevated level, but demand for investment loans has been falling. In August 2023, corporate loans grew by 4.7% year on year, i.e. only at half the rate recorded at end-2022. At the same time, loans to households contracted by 1.3%, caused by a shrinking volume of mortgage loans, as increasing interest rates made the latter less affordable. In light of this, the annual growth rate of domestic loans to nonbanks declined to 1.1% in August 2023.

The credit-to-GDP gap remained negative, warranting a countercyclical capital buffer (CCyB) of 0%. The credit-to-GDP gap, which serves as the leading indicator for activating the CCyB, remained well below the critical threshold of +2 percentage points, which implied a CCyB of 0%. However, with GDP growth having proven increasingly volatile over the last few years, the credit-to-GDP gap may have become less reliable as an indicator of the buildup of cyclical risk. Consequently, supervisory authorities closely monitor additional relevant indicators that relate, for instance, to the correct pricing of risks in the financial system, the valuation of real estate markets and the indebtedness of households and corporates.

Since the introduction of binding borrower-based measures (BBMs) in Austria in August 2022, ² residential real estate (RRE) lending standards have improved significantly. The BBMs, which are a structural macroprudential instrument, define limits for new RRE lending with respect to the loan-to-value (LTV) ratio (90%), the debt service-to-income (DSTI) ratio (40%) and loan maturities (35 years). Since the fourth quarter of 2022, the share of sustainable lending has increased for all indicators defined in the BBMs. For the LTV ratio, the share of sustainable lending climbed from 70% to 79%. The shares of sustainable lending for the DSTI ratio and for loan maturities are even higher at 89% and 99% in the first half of 2023, which reflects an increase by 5 and 3 percentage points, respectively. Banks’ flexibility increased further in 2023 due to an amendment. In addition to the exemption bucket applicable to up to 20% of the volume of new loans, bridge loans, for instance, were exempted too. According to reporting data, banks only used around two-thirds of their total exemption bucket in the first half of 2023, which suggests that the decrease in mortgage volumes is demand driven. Further evidence that BBMs were not driving the deceleration comes from a comparison with the situation in Germany, where no such measures are in place and lending growth has shown a similar downward trend (see chart 3). Against this background and considering the current environment of higher interest rates, elevated economic uncertainties and lower loan demand, a recent evaluation suggests that it is necessary to keep the BBMs in place to prevent a rise in RRE-induced systemic risk.

Lending at variable interest rates remains an area of macroprudential concern. From 2022 onward, the share of new loans to households with variable interest rates rose again, reaching close to 50% in August 2023, which exposes borrowers to interest rate risks, and such risks have already started to materialize. Interestingly, this occurs at a time when interest rates for variable rate loans are higher than for fixed rate lending. This development warrants close monitoring, as variable rate loans carry an additional indirect credit risk for the banking system.

Credit quality remains high. Rising interest rates, subdued economic conditions and an increasing number of insolvencies, which are back at pre-pandemic levels, have not yet resulted in a deterioration of Austrian banks’ credit quality. This is in part because the effects of rising interest rates usually take some time to lead to credit defaults. Furthermore, amid lower household and corporate indebtedness, the consolidated nonperforming loan (NPL) ratio ³ remained at 2.0%. In mid-2023, the NPL ratios of corporate and household loans ran to 2.7% and 2.2%, respectively, as can be seen in chart 4. Consequently, Austrian banks kept credit risk provisioning stable year on year, and the relative cost of risk ⁴ at 0.2%. The consolidated coverage ratio continued to fall, however, as vintage NPLs with higher provisions were replaced by newly formed, less provisioned NPLs.

The Austrian banking sector’s liquidity ratios are high and comfortably above minimum requirements. The sector’s liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) are high, with the median LCR amounting to 158% and the median NSFR equaling 127% in mid-2023. Austrian banks’ ratios are therefore comfortably above the minimum requirements of 100%. While reducing central bank deposits, banks’ repayments of amounts borrowed under the Eurosystem’s targeted longer-term refinancing operations (TLTROs) freed up collateral. In terms of liquidity ratios, Austrian banks thus match or slightly outperform the European average, while their central bank reserves still account for a major part of their liquid assets.

The capitalization of the Austrian banking sector has improved, but Austrian significant institutions (SIs) continue to trail behind their competitors. Driven by retained earnings, the Austrian banking sector’s common equity tier 1 (CET1) capital rose to EUR 90 billion in the first half of 2023. The corresponding CET1 ratio stood at 16.6%. At 7.9%, the consolidated leverage ratio, which offsets the weaknesses of risk-based capital requirements, was kept nearly stable. Despite the increased capitalization, Austrian SIs still trail behind both their smaller local competitors and European SIs on average. ⁵ Therefore, continued efforts are needed by Austrian SIs to increase their capital base. The gradual phase-in of increased structural buffer requirements until 2024 is an important step in this direction, not least because a strong capital base is crucial in times of high inflation, sharply rising interest rates, geopolitical tensions and a subdued economic outlook. ⁶

Austrian banks’ activities in CESEE are concentrated in EU member states, but Russia’s profit contribution continues to be considerable. With more than 80% of assets and 60% of profits originating from inside the EU, Austrian banks’ CESEE subsidiaries predominantly operate within the common European framework. Nonetheless, as highlighted by chart 5, six countries have dominated profit contributions over the last years, with Russia playing a significant role, although those profits are currently not transferable.

Austrian banks’ subsidiaries in CESEE earned a record EUR 2.7 billion in the first half of 2023. In a higher interest rate environment, the subsidiaries earned more than EUR 4 billion in net interest income (+16% year on year), while fees and commissions income rose by 10% to more than EUR 2 billion. Consequently, operating income amounted to EUR 6.5 billion and subsidiaries’ operating profit (EUR 3.6 billion) was up by almost 20%. Very much like in Austria, credit risks have not yet materialized, despite high interest rates, a cost-of-living crisis and higher input costs for companies. The NPL ratio ⁷ reached a historic low of 1.9% and credit risk provisioning dropped by more than one-third year on year. The share of IFRS 9 stage 2 loans started to increase, however, which points to rising risks (see chart 6). ⁸ The overall positive business development is reflected in the subsidiaries’ profit of EUR 2.7 billion (up more than one-third year on year) and their return on assets, which rose substantially from 1.4% in the first half of 2022 to 1.9% one year later.

As of mid-2023, the aggregate CET1 ratio of Austrian banks’ CESEE subsidiaries stood at 18.1% (up 2 percentage points year on year). Their loan-to-deposit ratio was 71%. ⁹ These solid levels are a testament to past efforts by banks and supervisors to make local banking systems more resilient, by increasing the subsidiaries’ risk-bearing capacity and ensuring a balanced refinancing structure. ¹⁰ The outlook for banking in CESEE remains clouded, given uncertainties related to the effects of the war in Ukraine, inflation as well as monetary policy. Hence, credit risk costs may start to rise and net interest margins might be squeezed as deposits are termed out.

The systemic risk buffer (SyRB) addresses, among other risks, the high and concentrated banking exposure to emerging economies in Europe. Disruptions in the whole or in parts of the Austrian financial system may entail severe negative consequences for the entire financial system and the real economy. The SyRB addresses structural systemic risks, inter alia the domestic banking sector’s specific ownership structures and its high exposure to emerging economies in Europe. Although the SyRB is a structural buffer that is expected to stay fairly stable over time and is not affected by short-term developments, the OeNB evaluates it on a regular basis. The next evaluation will take place in 2024.

Recommendations by the OeNB

• Continue to strengthen the capital base by exercising restraint regarding profit distributions.
• Adhere to sustainable lending standards for residential and commercial real estate financing.
• Ensure that interest rate risk management practices adequately reflect changes in the risk environment and that credit risk provisioning levels are conservative at the current juncture.
• For commercial real estate loans, be proactive in provisioning and use conservative collateral valuations.
• Maintain cost efficiency improvements to ensure structurally strong profitability.
• Further develop and implement strategies to deal with the challenges of new information technologies, increased cyber risks and climate change.

Special topics

Nontechnical summaries in English

The effects of cost-push inflation on Austrian banks

Christian Wipf

This study examines how cost-push inflation resulting from import price shocks, e.g. due to higher energy prices, affected the Austrian economy and banking sector during the current high inflation period (2021 to 2023). It finds that the import price shocks were responsible for an 8% rise in Austrian consumer prices, a 1% drop in Austrian GDP and a 180 basis point increase in interest rates following central bank reactions to higher inflation in this period. In the Austrian banking sector, the cost-push inflation shocks, on the one hand, drove up banks’ staff costs, administrative expenses and risk provisions (e.g. for credit risks) as inflation and interest rates went up. On the other hand, they also increased banks’ income (net interest income, fees and commissions income). Net interest margins, for instance – that is, the difference between interest income and expenses as a share of total assets – are estimated to be 25 basis points higher for small banks and 14 basis points higher for large banks in the period under observation due to cost-push inflation. The net effect on bank profitability depends on a bank’s size. For small banks, cost push-inflation drove up costs and risk provisions more than income, causing the return on assets (ROA) from 2021 to 2023 to be 35 basis points lower than without cost-push shocks. For large banks, the shocks led to smaller increases in costs and risk provisioning, resulting in a ROA that was 13 basis points higher in the same period.

Repricing of bank assets and liabilities in the current rate hike cycle: historical perspective and impact on bank profitability

Peter Breyer, Stefan Girsch, Jakob Hanzl, Mario Hübler, Sophie Steininger, Elisabeth Wittig

Having been low or even negative for several years, interest rates have been rising significantly since mid-2022. The banking sector benefited from this development, with Austrian banks making higher profits. In July 2023, the average overnight deposit rate in Austria was higher than the euro area average. For loans, however, both the interest rate level and pass-through rate are also higher in Austria. This is especially true for consumer loans. In sum, Austrian banks’ credit spreads widened faster in the current rate hike cycle than the euro area average. We find low cumulative betas – that is, a slow pass-through of the policy rate to deposit rates – for overnight deposits and higher betas for new term deposits. One of the main reasons for the historically low betas observed in the current cycle is the excess liquidity in the market. Finally, we find that interest rates are passed on to depositors at a slower rate during times of increasing interest rates than during times of declining interest rates. Bank profitability went up in the current rate hike cycle. In light of macroeconomic uncertainties and potentially rising credit risk costs, banks should use their profits to further strengthen their capital position.

Austria’s deposit guarantee scheme – resilient in uncertain times

Judith Eidenberger, Katharina Steiner

Austria’s deposit guarantee scheme (DGS) is multilayered, consisting of three separate DGSs. Despite this complex structure, the Austrian DGSs managed four deposit insurance cases effectively between 2020 and 2022. Despite the systemic dimension of the related payouts in times of exceptional macroeconomic uncertainty and although uncovered depositors incurred losses, the Austrian DGSs have remained credible, and the payout cases had no significant negative effects on banks or financial stability. Our study identifies three key aspects that helped maintain the credibility of Austria’s DGSs: (1) a well-functioning setup combined with a clear funding structure, (2) the efficient operational management of the payouts and (3) the superiority of the DGSs vis-à-vis other creditors in the distribution of insolvency assets combined with sound insolvency procedures.

What do people in Austria think about green finance?

Andreas Breitenfellner, Heider Kariem

This paper analyzes the results of the 2022 OeNB Barometer survey, which asked households in Austria about their opinions and knowledge about green finance. Put simply, green finance is any financial activity, product or service that contributes to sustainable development. We find that a majority expects that due to climate change, they will be financially worse off in 15 years’ time. At the same time, respondents seem to have mainly positive opinions and attitudes about green financial products and businesses. This is especially true for women as well as people who have a higher level of education and middle incomes and who are able to save more. By contrast, age, job status, town size and financial literacy appear to play a rather minor role. We also see that despite positive attitudes, there is low interest in buying green financial products – a finding that matches those of comparable Austrian and international studies. Only relatively few respondents seem to be prepared to do a certain amount of research on green investments and even accept lower returns. That said, contradictory answers suggest that some respondents struggle to understand green finance and related concepts. We also see skepticism about the credibility of financial products marketed as sustainable: A majority thinks that the financial sector deceives the public, cultivating an image of sustainability only to maximize profits (“greenwashing”). As greenwashing can undermine the trust of (potential) customers and may consequently jeopardize confidence in the financial sector and financial stability, it is an issue that financial supervisors should address.

Nontechnical summaries in German

Die Auswirkungen angebotsseitiger Inflation auf die österreichischen Banken

Christian Wipf

Diese Studie untersucht, wie sich die von Importpreisschocks – z. B. aufgrund höherer Energiepreise – ausgelöste Inflation von 2021 bis 2023 auf die österreichische Wirtschaft und den Bankensektor ausgewirkt hat. Die Studie zeigt, dass die Importpreisschocks zu einem Anstieg der österreichischen Verbraucherpreise um 8 %, einem Rückgang des österreichischen BIP um 1 % und – infolge der Reaktion der Zentralbanken auf die höhere Inflation – zu einer Steigerung der Zinssätze um 180 Basispunkte geführt haben. Im österreichischen Bankensektor haben die Schocks sowohl zu einem Anstieg der Kosten (Personal- und Sachaufwand sowie Risikokosten) als auch zu einem Anstieg der Erträge (Nettozinserträge und Provisionserträge) geführt. Die Nettozinsmargen – d. h. die Differenz zwischen Zinsertrag und -aufwand im Verhältnis zur Bilanzsumme – waren beispielsweise aufgrund der Inflation im Beobachtungszeitraum bei kleinen Banken um 25 Basispunkte und bei den Großbanken um 14 Basispunkte höher. Der Nettoeffekt der Inflation auf die Profitabilität der Banken hängt von der Bankengröße ab. Bei kleineren Banken stiegen die Kosten von 2021 bis 2023 stärker als die Erträge, d. h. die Inflation führte zu einer um 35 Basispunkte niedrigeren Gesamtkapitalrendite. Bei den Großbanken stiegen die Kosten aufgrund der Schocks geringfügiger an, d. h. die Inflation führte im selben Zeitraum zu einer um 13 Basispunkte höheren Gesamtkapitalrendite.

Weitergabe von Zinsschritten bei Krediten und Einlagen im aktuellen Umfeld steigender Zinsen: historischer Rückblick und Auswirkungen auf die Profitabilität der Banken

Peter Breyer, Stefan Girsch, Jakob Hanzl, Mario Hübler, Sophie Steininger, Elisabeth Wittig

Nach einigen Jahren mit niedrigen beziehungsweise sogar negativen Zinsen sind die Zinsen seit Mitte 2022 deutlich angestiegen. Dies wirkte sich auf den Bankensektor positiv aus: Die österreichischen Banken erzielten höhere Gewinne. Der durchschnittliche Zinssatz für täglich fällige Einlagen in Österreich war im Juli 2023 höher als im Durchschnitt des Euroraums. Allerdings ist in Österreich auch bei Krediten das Zinsniveau höher und die Weitergabe der Zinserhöhungen rascher als im Euroraum-Durchschnitt. Das gilt insbesondere für Konsumkredite. Insgesamt sind die Kreditmargen der österreichischen Banken im derzeitigen Umfeld steigender Zinsen deutlicher gestiegen als im Euroraum-Durchschnitt. Die Ergebnisse der Studie zeigen niedrige kumulative Betas (d. h. eine langsame Weitergabe der steigenden Leitzinsen bei Einlagen) für täglich fällige Einlagen und höhere Betas für neue gebundene Einlagen. Ein wesentlicher Grund für die langsame Zinsweitergabe ist die Überliquidität am Markt. Zuletzt zeigt die Studie, dass Zinsänderungen auf der Einlagenseite in einem Umfeld steigender Zinsen langsamer weitergegeben werden als in einem Umfeld fallender Zinsen. Die Profitabilität der Banken ist seit Beginn der Zinsanhebungen gestiegen. Vor dem Hintergrund makroökonomischer Unsicherheiten und potenziell steigender Kreditrisikokosten sollten die Banken die Gewinne nutzen, um ihre Kapitalausstattung weiter zu stärken.

Das österreichische Einlagensicherungssystem – belastbar in unsicheren Zeiten

Judith Eidenberger, Katharina Steiner

Die österreichische Einlagensicherung besteht aus drei separaten Einlagensicherungssystemen. Trotz dieser Komplexität konnten zwischen 2020 und 2022 vier Einlagensicherungsfälle erfolgreich abgewickelt werden. Dies gelang ohne signifikante negative Auswirkungen auf Banken und Finanzstabilität, obwohl die entsprechenden Auszahlungen in Zeiten außergewöhnlicher gesamtwirtschaftlicher Unsicherheit systemisch relevant waren und bei ungesicherten Einlagen Verluste verzeichnet wurden. Das Vertrauen in die österreichische Einlagensicherung blieb weiterhin aufrecht. In dieser Studie konnten drei wesentliche Faktoren für die Glaubwürdigkeit der österreichischen Einlagensicherung ermittelt werden: (1) der gut funktionierende Aufbau und die klare Finanzierungsstruktur, (2) die gute operative Durchführung der Auszahlungen und (3) die Vorrangigkeit der Einlagensicherung gegenüber anderen Gläubigern bei der Verteilung der Insolvenzmasse, gepaart mit einem soliden Insolvenzverfahren.

Was halten die Menschen in Österreich von Green Finance?

Andreas Breitenfellner, Heider Kariem

In dieser Studie analysieren wir die Ergebnisse der OeNB-Barometer-Umfrage 2022, bei der die Meinung und das Wissen österreichischer Haushalte zum Thema Green Finance erhoben wurden. Der Begriff Green Finance bezeichnet – vereinfacht ausgedrückt – jegliche Aktivitäten, Produkte und Dienstleistungen im Finanzsektor, die zu einer nachhaltigen Entwicklung beitragen oder zumindest die Risiken einer nicht nachhaltigen Entwicklung berücksichtigen. Laut den Ergebnissen der vorliegenden Umfrage geht eine Mehrheit davon aus, dass sich ihre finanzielle Situation in den nächsten 15 Jahren aufgrund des Klimawandels verschlechtern wird. Gleichzeitig haben die Befragten überwiegend eine positive Meinung bzw. Einstellung zu grünen Finanzprodukten und Unternehmen. Dies ist insbesondere unter Frauen sowie Menschen mit höherem Bildungsniveau, mittlerem Einkommen bzw. ausgeprägterem Sparverhalten zu beobachten. Andererseits dürften Faktoren wie Alter, Beschäftigungsstatus, Größe der Wohngemeinde und Finanzbildung in dieser Hinsicht eine eher geringe Rolle spielen. Ferner zeigt unsere Analyse, dass ungeachtet der positiven Einstellung gegenüber grünen Finanzprodukten das konkrete Interesse, in solche zu investieren, noch gering ist; dieses Ergebnis deckt sich mit jenen vergleichbarer österreichischer und internationaler Studien. Nur ein relativ kleiner Teil der Befragten scheint bereit zu sein, aktiv Informationen über grüne Investitionen einzuholen oder gar geringere Erträge in Kauf zu nehmen. Allerdings deuten zum Teil widersprüchliche Antworten darauf hin, dass einige der Befragten Schwierigkeiten haben, Green Finance und damit zusammenhängende Begriffe zu verstehen. Skepsis herrscht gegenüber als nachhaltig beworbenen Finanzprodukten: Eine Mehrheit ist der Meinung, dass der Finanzsektor nur zur Gewinnmaximierung ein Nachhaltigkeitsimage pflegt („Greenwashing“). Da Greenwashing das Vertrauen (potenzieller) Kund:innen und somit das Vertrauen in den Finanzsektor und die Finanzstabilität untergraben kann, sollten sich die Finanzaufsichtsbehörden mit diesem Thema befassen.

The effects of cost-push inflation on Austrian banks

Christian Wipf ¹²

To better understand what the current inflationary surge means for financial stability, this study analyzes how cost-push inflation resulting from import price shocks affected key Austrian macroeconomic variables during the current high inflation period (Q2 21 to Q1 23). Broadly in line with the expectable effects of a negative supply shock, the import price shocks are estimated to have caused an 8% rise in Austrian consumer prices, a 1% drop in Austrian GDP and a 180 basis point increase in interest rates following central bank reactions to higher inflation. The effects on Austrian banks’ income statements are more nuanced. On the one hand, the inflationary shocks drove up costs (staff costs and administrative expenses) and banks’ risk provisions; on the other hand, they also caused banks’ income to rise (net interest income and income from fees and commissions). Net interest margins, for instance, are estimated to be 25 basis points (14 basis points) higher for small (large) banks in the period from 2021 to 2023 due to cost-push inflation. The net effects on bank profitability turn out to be heterogenous. For small banks, cost push-inflation drove up costs and risk provisions more than income, causing the return on assets (ROA) to be 35 basis points lower in the period from 2021 to 2023. For large banks, the shocks led to smaller increases in costs and risk provisioning, resulting in a ROA that was 13 basis points higher in the same period.

JEL classification: E31, E44, G21, Q43

Keywords: cost-push inflation, import prices, banks, Austria

This paper follows similar studies on the effects of terms-of-trade, import or oil price shocks on macroeconomic aggregates. ¹⁴ It is structured as follows: Section 1 identifies inflationary cost-push shocks from the import side. Section 2 estimates the effects of such shocks on Austrian macroeconomic variables (GDP, CPI inflation and short-term interest rates) to clarify the macroeconomic scenario. Finally, section 3 estimates the effects of these shocks on key components of Austrian banks’ income statements. All models employed in this study are estimated using data up until Q4 19 only, given the extreme effects of the COVID-19 pandemic, ¹⁵ and are then applied to the current high inflation period in Austria. Since the transmission of import price shocks to macroeconomic and bank variables takes time, all models are estimated with lags of up to two years.

1 Shock identification

Chart 1 shows the VAR model estimates of the supply shocks επ,t and the actual commodity price changes. As the left-hand panel indicates, cost-push shocks explain most of the changes in actual commodity prices. The right-hand panel also shows the model-implied shocks for the high inflation period from Q2 21 to Q1 23. The cost-push shocks were particularly strong in the second half of 2021 and in the first quarter of 2022.

2 Macroeconomic effects

(1)

Table 1: Macroeconomic variables used in this study  

	Description of variable	Period	Source
CPI inflation	Yearly change in Austrian consumer price index in %	Q1 93 to Q4 19	Statistics Austria
Interest rate	Quarterly change in euro area three-month interbank rate in basis points	Q1 94 to Q4 19	OECD; FRED1
GDP	Quarterly Austrian GDP growth in %, seasonally adjusted	Q2 95 to Q4 19	Statistics Austria
Source: Author’s compilation.
1 FRED = Federal Reserve Economic Data database (series ID:IR3TIB01EZM156N).

Chart 2 shows the reactions of these variables after a supply shock initially increased commodity prices by 10 percentage points, as shown in the bottom right-hand panel, over the following two years (eight quarters). ¹⁷

The other panels show that such a shock increases consumer prices by 1.3% and short-term interest rates – through central bank reactions – by about 20 basis points in the course of two years. After an initial rise, GDP finally decreases by 0.1% after a period of two years.

Chart 3 applies the model to the current high inflation period. It shows the marginal effects of the cost-push inflation shocks of the period from Q2 21 to Q1 23 on the three macroeconomic variables until Q4 23, i.e. it shows how the variables would have developed if they had only been affected by the cost-push shocks of the high inflation period.

The model suggests that the shocks caused Austrian consumer prices to rise by about 8%, interest rates to increase by 180 basis points and GDP to decline by about 1%. Given the long lags in the effects on GDP, however, this decline is not expected to materialize until mid-2023. These results are broadly in line with the expected effects of an imported negative supply shock: Higher energy and commodity prices should lead to a rise in production costs and inflation, reduce output and increase interest rates as central banks react to rising inflation. ¹⁸ The results are also broadly in line with actual data. Actual inflation increased by 8.0 percentage points between Q2 21 and Q1 23 while the model predicts a rise in inflation by 7.7 percentage points. However, the model underestimates the actual interest rate increase. Actual interest rates rose by 317 basis points between Q2 21 and Q1 23, while the model only predicts an increase by 161 basis points. This is no surprise as the current interest rate hikes were exceptionally strong by historical standards. ¹⁹

3 Effects on banks

(2)

Chart 4 and chart 5 show the reactions of the bank variables to the same supply shock that initially increased commodity prices by 10 percentage points over the following two years (eight quarters). They provide five main takeaways: First, except for large banks where administrative expenses hardly react, the inflationary shock tends to increase banks’ staff costs and administrative expenses. This is consistent with the idea that cost-push inflation increases input prices and wages. Second, the fees and commissions income of both groups of banks also goes up, suggesting that banks can pass part of the cost increases on to customers. Third, cost-push inflation shocks tend to improve Austrian banks’ NIM. This is consistent with the view that banks can pass on most of the interest rate increases to their borrowers due to the high share of variable rate loans. In contrast, customer deposits, especially those of households, are rather insensitive to interest rate changes, which means deposit repricing is slow. ²³ Fourth, the inflation shock drives up bank risk provisions, which is consistent with the idea that higher inflation, higher interest rates and lower growth tend to increase credit and market risk. Fifth, the overall effect on banks is heterogenous: While the overall profitability of an average small bank tends to go down after the inflationary shock, the effect on the overall profitability of an average large bank is slightly positive. For small banks, rising costs and higher risk provisions outweigh increasing net interest margins and fees and commissions income. For large banks, smaller cost increases and smaller risk provisioning turn the balance the other way.

To put this into a quantitative perspective, chart 6 shows how the inflationary shocks of the current high inflation period (Q2 21 to Q1 23) affected bank variables, starting from their 2021 means. For an average small bank, it is estimated that the cost-push shocks increased the NIM by 25 basis points (19%) and fees and commissions income by 20 basis points (10%) until end-2022. They also caused administrative expenses and staff costs to rise by 9 basis points (8%) and 19 basis points (12%), respectively. Their most significant effect is the increase in small banks’ risk provisions by 35 basis points (150%) though. This is the main reason why the shocks reduced the ROA of small banks by 45% from around 75 basis points in 2021 to 40 basis points in 2023. For large banks, the model predicts that the current inflationary shocks increased the NIM and fees and commissions income by 14 basis points (18%) and by 7 basis points (17%), respectively, while the effect on costs was concentrated on staff costs increasing by 14 basis points (30%). Risk provisions went up only by 8 basis points (33%) due to the inflationary shocks, contributing to a modest increase in large banks’ ROA by 13 basis points (31%). Comparing the predicted values with actual data, we find that the model’s underestimation of NIM increases is particularly striking. Between Q1 21 and Q1 23, the actual average NIM for small (large) banks increased by 111 (38) basis points, while the model predicts increases of 24 (6) basis points. This probably has two reasons: First, as explained above, the model underestimates interest rate increases as such. Second, the pass-through of interest rate increases to deposit rates has been exceptionally low in the current hiking cycle, as documented e.g. by Ferrer et al. (2023).

References

Bjornland, H., V. Larsen and J. Mai. 2018. Oil and Macroeconomic (In)Stability. In: American Economic Journal: Macroeconomics 10(4). 128–151.

Bjornland, H. 2022. The effect of rising energy prices amid geopolitical developments and supply disruptions. CAMP Working Paper Series.

Di Pace, F., L. Juvenal and I. Petrella. 2021. Terms-of-Trade Shocks are Not all Alike. Bank of England working paper.

Ferrer, A., G. Ganics, A. Molina and J. M. Serena. 2023. The EURIBOR surge and bank deposit costs: an investigation of interest rate pass-through and deposit portfolio rebalancing. Banco de España working paper.

Hoffmann, P., S. Langfield, F. Pierobon and G. Vuillemey. 2019. Who Bears Interest Rate Risk? In: The Review of Financial Studies 32(8). 2921–2954.

Kaenzig, D. 2021. The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements. In: American Economic Review 111(4). 1092–1125.

Kilian, L. 2008. A comparison of the effects of exogenous oil supply shocks on output and inflation in the G7 countries. In: Journal of the European Economic Association 6(1). 78–121.

Schmitt-Grohe, S. and M. Uribe. 2018. How important are terms of trade shocks? In: International Economic Review 59(1). 85–111.

Annex

Table A1: Descriptive statistics for small and large banks (Q4 98 to Q4 01)  

	Number of observations			Means, basis points
	All banks	Small banks	Large banks	All banks	Small banks	Large banks
Net interest margin (NIM)	62,646	56,295	1,468	193	201	89
Fees and commissions income	62,693	56,232	1,451	166	178	37
Administrative costs	62,655	56,291	1,408	107	113	38
Staff costs	62,649	56,290	1,442	158	167	55
Risk provisions	21,908	16,672	1,501	23	21	25
Return on assets (ROA)	62,653	57,028	1,484	73	76	34
Source: OeNB.

Repricing of bank assets and liabilities in the current rate hike cycle: historical perspective and impact on bank profitability

Peter Breyer, Stefan Girsch, Jakob Hanzl, Mario Hübler, Sophie Steininger, Elisabeth Wittig ²⁴

After several years of low or even negative interest rates, rates have been rising since mid-2022. While banks in Austria had been unable to pass negative interest rates on to retail deposits because they were legally required to keep these rates above 0%, the Austrian banking sector benefited from the current rate hike cycle, with banks reporting high profitability levels. Deposit margins have increased since mid-2022, as have various credit spreads (i.e. the difference between lending and deposit rates). Furthermore, banks’ high profitability is also driven by historically low credit risk costs.

The average overnight deposit rate in Austria (0.69% in July 2023) is higher than the euro area average of 0.27%. For loans, and in particular for consumer loans, however, both the interest rate level and pass-through rate are also higher in Austria. This is attributable, inter alia, to the combined effect of a higher share of variable rate loans and an inverted yield curve. In sum, Austrian banks’ credit spreads increased faster in the current rate hike cycle than those of banks in other euro area countries.

We find low cumulative betas (i.e. the pass-through of a reference rate to the deposit rate) for overnight deposits (16% for households in the current rate hike cycle) and higher betas for new term deposits (up to 88% for nonfinancial corporations and 65% for households). A main reason for the historically low betas observed in the current cycle is the excess liquidity in the market. Finally, we find that interest rates are passed on to deposits more slowly in times of increasing interest rates than in times of declining interest rates.

After the onset of the global financial crisis and during the low interest rate environment prevailing until mid-2022, euro area banks’ cost of equity was consistently higher than their return on equity. Bank profitability increased in the current rate hike cycle, and in light of macroeconomic uncertainties and potentially rising credit risk costs, banks should use profits to further strengthen their capital position.

JEL classification: G21, G28, E43, E58

Keywords: Austrian banks, profitability, interest rates, deposit margins, interest margins, deposit betas

The paper is structured as follows: In section 1, we show how Austrian banks’ profitability, interest rates, deposit margins and credit spreads developed over the long term and compare the interest rate pass-through of Austrian banks with that of banks in other euro area countries. In section 2, we analyze the development of cumulative deposit betas and conduct a cross-correlation analysis between market interest rates and retail deposit rates. Finally, section 3 summarizes our key findings.

1 Interest rates and bank profitability from a historical perspective

1.1 Development of interest rates and bank profitability in Austria

Before the financial crisis, which started in 2007, interest rates in Austria had been on the rise since late 2005 when the European Central Bank (ECB) started to raise its policy rates as the economy was booming and risks to price stability increased. During the financial crisis, the ECB cut its policy rate to 1% while guaranteeing banks almost unlimited access to liquidity as long as they had sufficient eligible collateral (Stark, 2009). The period from 2009 to 2022 was characterized by decreasing interest rates in the euro area – the three-month EURIBOR fell from over 5% to approximately –0.5% and the average overnight deposit rate declined from slightly over 2% to 0.1%. Rates remained at low levels until July 2022 when the ECB decided to raise its rates to counteract rising inflation. Importantly, current deposit rates should be analyzed in light of the excess liquidity existing in the market and the adverse impact on deposit competition (Agénor and El Aynaoui, 2010).

In the following, we will analyze the development of interest rates, spreads and deposit betas since the beginning of the current rate hike cycle as well as from a longer historical perspective and draw conclusions regarding bank profitability.

1.2 Development of deposit margins and interest rate spreads in Austria

As of end-July 2023, Austrian banks paid on average 281 basis points less than the deposit facility rate on overnight deposits and 86 basis points less than the three-month EURIBOR on new term deposits, which constitute the highest margins for both overnight and term deposits in the period under review. ²⁸

With regard to the impact of rising rates on bank profitability, the development of deposit rates should be analyzed in relation to the development of lending rates and the resulting overall impact on the respective spreads. Since the beginning of the current rate hike cycle, spreads between deposit and lending rates have increased significantly, as shown in chart 4. The interest rate spreads for both new consumer loans and new residential real estate (RRE) loans are currently at their highest levels since 2004. ²⁹ Similarly, the spread between the average overdraft rate and the overnight deposit rate has increased sharply since the beginning of 2022.

While chart 4 focuses on interest rates of newly granted loans, chart 5 shows the development of interest spreads with regard to total outstanding volumes and compares the difference between average lending rates and average deposit rates. Austrian banks benefited from the current rate hike cycle, with deposits repricing at a much slower pace than loans, leading net interest margins and therefore profitability to increase to high levels. The most important drivers are the sharp increase in consumer loan rates and the slow repricing of overnight deposits. As chart 1 shows, historically low credit risk costs further contributed to the high profitability of Austrian banks.

1.3 Comparison of Austrian and euro area interest rates

However, when looking at the asset side, we also see that the interest rate level and the pass-through rate for lending are higher for Austrian banks, which is especially true for consumer loans. The average rate for newly granted consumer loans is higher in Austria (8.71%, which is also the highest figure in the observation period) than in the euro area (7.78%). At 4.17%, the average rate for RRE loans in Austria is also higher than the euro area average of 3.79%. Furthermore, the pass-through of rising rates to loans was faster in Austria than the euro area average. When comparing the pass-through rates of Austrian banks with the euro area average, it is important to highlight that the share of newly granted RRE loans with variable interest rates is significantly higher in Austria (50% in July 2023) ³⁰ than in the euro area (19%). Variable rate loans traditionally make up a relatively large proportion of total loans in Austria (Gnan et al., 2019). Given the currently inverted yield curve, this higher share of loans with variable interest rates therefore might explain the higher pass-through rate Austrian banks recorded on the asset side.

Overall, Austrian banks’ credit spreads widened faster during the current rate hike cycle than those of banks in other euro area countries as a stronger increase in lending rates more than offset the higher pass-through in deposit rates.

The following charts compare the development of deposit and lending rates of Austrian banks and of other euro area banks:

2 Interest rate pass-through

2.1 Comparison of deposit betas

When we compare the current rate hike cycle with the interest rate increase in the pre-financial crisis period, we see that the cumulative betas for both overnight and term deposits are significantly lower now than in the period before the financial crisis. From the beginning of the fifth quarter of the current rate hike cycle, the overnight deposit beta in Austria has remained low, at 16% (chart 8). This contrasts with the 35% beta observed for the same period in the 2005–2008 cycle. Hence, the deposit betas in the current rate hike cycle are relatively low, also from a historical point of view. A main reason for these historically low betas is that the excess liquidity in the market, which is also driven by monetary policy and the low interest rate environment, leads to reduced competition for bank deposits (Agénor and El Aynaoui, 2010).

Examining the absolute change in interest rates for total deposits ³² and loans, we find a significantly larger increase in lending rates, since mid-2022, than in deposit rates. As chart 9 shows, the average deposit rate (defined as the weighted average of overnight and term deposits) went up by 124 basis points, while lending rate increases ranged from 253 basis points (RRE loans) to 305 basis points (overdrafts). Lending rates, however, might also rise with expectations of rising credit risk.

2.2 Cross-correlation analysis of market interest rates and retail deposit rates

First, we separately calculated the cross-correlation coefficient for rising and decreasing interest rate environments, ³⁴ excluding the low interest rate environment between 2012 and 2022 from our analysis. Second, we calculated the cross-correlation coefficient across different time lags to identify the period within which changes in the market interest rate showed the closest similarity to changes in deposit rates. ³⁵ Third, we identified the lag with the highest correlation coefficient and the corresponding coefficient for Austria and for the euro area (see table 1 and table 2).

During times of increasing interest rates, we find a lower correlation and pass-through of interest rates than in times of decreasing interest rates. This is consistent with observations that bank profitability benefits during the first phase of a rate hike cycle due to a slower repricing of deposits and relatively benign credit cycles.

For overnight deposits and term deposits in Austria and the euro area, the correlation coefficient is lower in a rising rate environment than in a decreasing rate environment. Additionally, in a rising interest rate environment, the time lag with the highest correlation is higher for overnight deposits than for term deposits. We conclude that the highest correlation occurs later in a rising interest rate environment than in a decreasing rate environment and that the interest rate pass-through takes place at a later point in time in a rising interest rate environment. Overall, interest rates are passed on to deposits more slowly (longer lag) and to a lesser extent (lower coefficient) during times of increasing interest rates than during times of decreasing interest rates.

Table 1: Cross-correlation analysis for Austria  

	Increasing interest rate environment		Decreasing interest rate environment
	Lag (months)	Coefficient	Lag (months)	Coefficient
Households’ overnight deposits	4	0.41	1	0.63
Households’ term deposits	1	0.45	1	0.86
Source: Bloomberg, authors’ calculations.

Table 2: Cross-correlation analysis for the euro area  

	Increasing interest rate environment		Decreasing interest rate environment
	Lag (months)	Coefficient	Lag (months)	Coefficient
Households’ overnight deposits	3	0.27	1	0.79
Households’ term deposits	1	0.65	1	0.83
Source: Bloomberg, authors’ calculations.

3 Summary and conclusions

Austrian banks’ deposit margins have increased significantly since mid-2022. At the end of July 2023, Austrian banks paid on average 281 basis points less than the deposit facility rate on overnight deposits and 86 basis points less than the three-month EURIBOR on new term deposits. Similarly, various credit spreads have increased in the current rate hike cycle. Both the spreads for new consumer loans and new residential real estate loans (relative to average deposit cost) are currently at an all-time high.

The average overnight deposit rate in Austria (0.69% as of July 2023) is above the euro area average of 0.27%, while Austrian term deposit rates are approximately at the same level as the euro area average. We find that both the interest rate level and the pass-through rate for lending are higher in Austria, which can be explained, inter alia, by the fact that the share of variable rate loans in Austria is higher while the yield curve is currently inverted. In sum, Austrian banks’ credit spreads increased faster in the current rate hike cycle than those of other euro area banks.

We find low cumulative betas for overnight deposits for households (16%) and nonfinancial corporations (15%) in the current rate hike cycle and higher betas for new term deposits (88% for nonfinancial corporations and 65% for households). A comparison of the current rate hike cycle with the pre-financial crisis period shows that the cumulative beta is lower during the current rate hike cycle for both overnight and term deposits. Among the main reasons for the historically low betas observed in the current cycle are the excess liquidity in the market and its impact on deposit competition. Finally, we conducted a cross-correlation analysis to identify differences in the repricing of bank deposits in different interest rate environments. We find that interest rates are passed on to deposits more slowly and to a lesser extent in times of increasing interest rates than in times when interest rates are going down.

After the onset of the global financial crisis and during the low interest rate environment that prevailed until mid-2022, euro area banks’ cost of equity was consistently higher than their return on equity (Altavilla et al., 2021). Bank profitability increased in the current rate hike cycle. In light of macroeconomic uncertainties and potentially rising credit risk costs, however, banks should use their profits to further strengthen their capital position.

References

Agénor, P. R. and K. El Aynaoui. 2010. Excess liquidity, bank pricing rules, and monetary policy. In: Journal of Banking & Finance 34(5). 923–933.

Altavilla, C., P., Bochmann, J. De Ryck, A. Dumitru, M. Grodzicki, H. Kick, C. M. Fernandes, J. Mosthaf, C. O’Donnell and S. Palligkinis. 2021. Measuring the cost of equity of euro area banks. In: ECB Occasional Paper Series 254/2021.

de Bondt, G. J. 2005. Interest Rate Pass-Through: Empirical Results for the Euro Area. European Central Bank. In: German Economic Review 6(1). 37–78.

Demirgüç-Kunt, A. and H. Huizinga. 1999. Determinants of commercial bank interest margins and profitability: some international evidence. In: The World Bank Economic Review 13(2). 379–408.

English, W. B., S. J. Van den Heuvel and E. Zakrajšek. 2018. Interest rate risk and bank equity valuations. In: Journal of Monetary Economics 98. 80–97.

Ferstl, R., B. Graf and C. Kwapil. 2023. Banking on Beta – Kommen die gestiegenen Zinsen bei österreichischen Haushalten an? In: Thema im Fokus. OeNB. https://www.oenb.at/Presse/thema-im-fokus/2023/banking-on-beta.html

Gnan, E., M. T. Valderrama and W. Waschiczek. 2019. Financing conditions in Austria since the introduction of the euro. In: Monetary Policy & the Economy Q1–Q2/19. OeNB.

Kang-Landsberg, A., S. Luck and M. Plosser. 2023. Deposit Betas: Up, Up, and Away? Liberty Street Economics, Federal Reserve Bank of New York. Deposit Betas: Up, Up, and Away? - Liberty Street Economics (newyorkfed.org)

Sääskilahti, J. 2018. Retail bank interest margins in low interest rate environments. In: Journal of Financial Services Research 53. 37–68.

Stark, J. 2009. Monetary Policy before, during and after the financial crisis. European Central Bank. Monetary Policy before, during and after the financial crisis (europa.eu)

Austria’s deposit guarantee scheme – resilient in uncertain times

Judith Eidenberger, Katharina Steiner ³⁶

Austria’s deposit guarantee scheme (DGS) is multilayered, consisting of three separate schemes. Between 2020 and 2022, Austria’s DGS faced four payout events. Although its setup is rather complex and the payout events occurred in periods of exceptional macroeconomic uncertainty, Austria’s DGS has proved resilient, and depositors have remained confident. We identify three key aspects that helped maintain the credibility of Austria’s DGS: (1) a well-functioning setup and funding structure, (2) the efficient operational management of the payouts and (3) the superiority of the DGS in the creditor hierarchy and sound insolvency procedures.

JEL classification: G21, G28, H12

Keywords: deposit guarantee scheme, payout event, financial stability, systemic risk

Austria’s deposit guarantee scheme is made up of three different DGSs that managed four payout events between March 2020 and March 2022 – in two years of exceptional macroeconomic uncertainty, characterized by the COVID-19 pandemic, the war in Ukraine and the energy crisis. This paper examines the impact of these four payout events on banks and depositors in Austria by analyzing banks’ reporting data and undertaking a media analysis. Our results show neither a negative impact on Austrian banks’ resilience nor a slump in deposits and depositor confidence nor a loss in credibility for Austria’s DGSs. The paper is structured as follows: Section 1 describes the multilayered structure of Austria’s DGS. Section 2 takes a financial stability perspective, focusing on the OeNB’s integrated macroprudential approach. Section 3 summarizes the impact of the four recent payout events in Austria. Section 4 concludes.

1 The structure of Austria’s DGS is multilayered

In line with the EU Deposit Guarantee Schemes Directive (Directive 2014/49/EU – DGSD ), payout events should primarily be financed by banks and not by public funds. As in a payout event DGSs need to act swiftly and make funds immediately available to the depositors of the failing bank, they need a clear and reliable funding structure to be credible. In line with the DGSD, there are three sources of DGS funding: (1) ex ante funds, to be built up by the DGS member banks independently of any payout event, (2) ex post contributions and (3) extraordinary contributions with alternative funding arrangements to obtain short-term funding (e.g. credit operations with a public guarantee serving as a last resort).

Each deposit-taking credit institution is required to be a member of a DGS. In Austria, three DGSs are currently in place:

1. Sparkassen-Haftungs GmbH (s-Haftung) for Austrian saving institutions (since 2019);
2. Österreichische Raiffeisen-Sicherungseinrichtung eGen (ÖRS) for Raiffeisen credit cooperatives (since end-2021); ³⁸
3. Einlagensicherung Austria GmbH (ESA) for all other Austrian banks and their branches (a total of around 100) (since 2019).

During insolvency procedures after a DGS payout case, DGSs can claim their expenses from the insolvency estate. DGSs enjoy preferred creditor status in the creditor hierarchy, ranking at the same level as paid-out covered depositors, which enjoy superiority under the DGSD. This superior status of the DGSs helps increase and speed up the recovery of DGS payouts (Hardy, 2014).

2 DGS: an important pillar of financial stability

Systemic risk analysis helps financial stability supervisors and macroprudential authorities assess whether a country’s DGS has a risk-mitigating or -amplifying effect (Schmitz and Eidenberger, 2021). Specifically, it determines the capacity of the DGS and identifies potential need for reform or (macro)prudential measures. Such (macro)prudential measures usually aim at increasing capitalization in the respective banking system and thus increase the system’s capacity to absorb the contagion effects of a DGS payout. In its systemic risk analysis, the Oesterreichische Nationalbank (OeNB) evaluates the capital and liquidity effects of simulated payout events on banks.

In 2022, the OeNB conducted its most recent DGS-related systemic risk assessment for the Austrian Financial Market Stability Board ( FMSB ). Based on simulations of fictitious payout events, the effects of these fictitious events on other banks’ capital and liquidity coverage ratios were assessed for different capital and liquidity requirement scenarios. The capacity threshold of the DGS was set so that the remaining capital and liquidity in the banking system is sufficient not to endanger financial stability. This capacity threshold plays a major role in the OeNB’s integrated macroprudential approach as it is also applied in identifying systemically relevant banks.

This approach considers financial stability measures, crisis prevention and crisis resolution ⁴⁰ in equal measure and thus ensures consistency between macroprudential regulation, the bank resolution regime and the DGS. In macroprudential supervision, the interplay of measures in these three areas is of major interest (for more details on the integrated approach, see annex).

3 Past payout events in Austria had only insignificant impact on financial system

3.1 Austrian DGSs efficiently funded past payout events

Table 1: Overview of the four most recent Austrian payout events  

	Anglo Austrian Bank (AAB)	Commerzialbank Mattersburg (CBM)	Autobank	Sberbank
Time of DGS payout	March 2020	July 2020	July 2021	March 2022
Trigger of DGS payout	Opening of insolvency proceedings	Prohibition to continue business operations	Prohibition to continue business operations	Prohibition to continue business operations
DGS concerned	ESA	ESA	ESA	ESA, s-Haftung, ÖRS
	EUR million
Covered deposits	59	481	108	947
	%
Recovery rate (expected)	100	28	100	100 (realized)
Source: OeNB.

These payout events proved that (1) the operational management of the payouts by the DGSs worked well, (2) the concept of five steps of funding is efficient, (3) the superiority of the DGS is important for financial stability and for the credibility of the DGS and (4) good insolvency procedures facilitate the recovery of funds from the insolvency estates.

3.2 Development of covered deposits indicates that Austria’s DGSs remain credible

No general withdrawal of deposits or covered deposits was observed after the first payout event in March 2020. Chart 1 shows deposits (liabilities to customers) and covered deposits at Austrian banks between March 2018 and December 2022. Both deposits and covered deposits increased by around 15% in volume between March 2020 and end-2022. Hence, we reject (1) that overall trust in Austria’s DGSs deteriorated. Rather, the increase in covered deposits indicates that they enjoy high credibility (which supports (2)).

We do not find evidence for the third potential reaction (3), namely that depositors assume larger banks are a safer haven for their covered deposits and move their deposits there. We analyze the change in the number of covered depositors per bank and consider bank size as the differentiating factor (see figure 2). ⁴⁵ The x-axis shows the change in the number of covered depositors, while the y-axis shows the change in the volume of covered deposits (between Q1 20 and Q4 22). Most banks are located in the upper right-hand quadrant, which indicates an increase in the volume of covered deposits and the number of covered depositors. The largest banks, though, record a smaller increase or even a decrease in the number of covered depositors but still an increase in the volume of covered deposits.

3.3 Payout events well-perceived in Austrian media coverage

4 Conclusion

References

Diamond, D. W. and P. H. Dybvig. 1983. Bank Runs, Deposit Insurance, and Liquidity. In: Journal of Political Economy 91(3). 401–19.

Ebner, A. and C. Westhoff. 2022. Joining prudential resolution regulation for systemically important banks. Working Paper. Deutsche Bundesbank.

Gächter, M., M. Geiger, F. Glötzl and H. Schuberth. 2015. Sectoral Deleveraging in Europe. In: Focus on European Economic Integration Q1/15. OeNB. 8–23.

Hardy, D. 2014. Bank resolution costs, depositor preference and asset encumbrance. In: Journal of Financial Regulation and Compliance 22. 96–114

Schmitz, S. W. and J. Eidenberger. 2021. Einlagensicherung und Finanzmarktstabilität. In: Raschauer, N. and T. Stern (eds.). Einlagensicherung. Vienna: Linde-Verlag 2021. 75–105.

Annex

Austria’s integrated macroprudential approach

In Austria, two structural macroprudential buffers are in place: the other systemically important institution buffer (O-SII buffer) and the systemic risk buffer (SyRB). The O-SII buffer is complementary to the SyRB as it aims to increase the risk-bearing capacity of systemically important banks and mitigate the too-big-to-fail issue. For the Austrian O-SII buffer, the market share of covered deposits is a relevant indicator as the failure of an important bank with a high share of (covered) deposits would stress the DGSs. Financial stability assessments concerning O-SII buffers and bank resolution have the same aim: identifying systemically important institutions. Hence, these two assessments should apply consistent methodologies and thresholds (Ebner and Westhoff, 2022). This is why the OeNB applies both consistent indicators and consistent thresholds in these three policy areas. The DGSs’ capacity threshold helps differentiate between banks that are small enough to leave the market under insolvency procedures (i.e. by becoming a payout event) and larger banks that need to be resolved as their insolvency would overburden the DGSs.

What do people in Austria think about green finance?

Andreas Breitenfellner, Heider Kariem ⁴⁶ Refereed by: Laurent Millischer, Joint Vienna Institute

This paper analyzes the results of a representative survey of Austrian households (OeNB Barometer) on green, i.e. sustainable, finance. This fast-growing market segment is receiving increasing attention from financial regulators and supervisors. A majority of respondents expect climate change to bring about a continuous deterioration in their financial situation over the next 15 years. At the same time, the answers to the questions specific to green finance suggest that respondents have mainly positive opinions and attitudes about sustainable financial products and businesses. We find this attitude to be more widespread among women as well as people with higher levels of education, middle incomes and higher saving rates. By contrast, age, job status, the size of the city or town where people live and financial literacy appear to play a rather minor role. The impact of these demographic and socioeconomic variables has, for the most part, been confirmed by regression analysis. Looking at actual demand, we find that there is low interest in green financial products, which is consistent with comparable Austrian and international studies. Some answers can be interpreted as evidence that at least a relatively small part of respondents is prepared to do a certain amount of research and even accept lower returns on sustainable investments. That said, contradictory answers suggest that some respondents struggle to understand green finance and related concepts. We also see skepticism about the credibility of financial products marketed as sustainable. Given that greenwashing can undermine the trust of (potential) customers and may consequently jeopardize confidence in the financial sector and financial stability, it is something that should be addressed by financial supervisors.

JEL classification: G41, Q5

Keywords: household survey, green finance, sustainable financial markets, ESG, climate change

Despite the intrinsic difficulty in defining the term, sustainability is becoming more and more important in the financial world. ⁴⁸ At the international level, financial service providers use ESG (environmental, social and governance) criteria to identify sustainable products, services and practices. In this paper, we will use the term green finance synonymously as it stresses environmental sustainability and, in particular, climate action, both of which require enormous amounts of funding. Even though some segments of the Austrian green finance market have grown out of their niche (C´etkovic´ and Zhan, 2023; FNG, 2023), green finance is still in its infancy measured by the amount of resources that need to be allocated away from high-emission industries and toward low-emission and green sectors (Breitenfellner et al., 2020). ⁴⁹

For central banks and other supervisors, managing physical and transition climate and ESG risks takes center stage (NGFS, 2019). ⁵⁰ In a delayed, slow or disorderly transition, financial risks can arise when the development of green finance is not in line with a corresponding decarbonization of the real economy (Claessens et al., 2022). Depending on the direction of the imbalance, this can lead to a brown or a green speculative bubble. Greenwashing, i.e. a gap between claims of sustainability and the actual positive impact on the environment, represents another realistic risk. ⁵¹ Ritsch and Prantner (2022) suggest that exaggerated marketing claims by financial service providers often meet with unclear and/or unrealistic customer expectations. In this regard, Gangl et al. (2023) found in a representative survey in Austria that half of respondents have insufficient sustainability-related financial literacy. Investigating the attitudes of (potential) consumers toward sustainable investment products therefore contributes to analyzing the growth and risk potential of green financial markets, to building trust in financial markets in general, and, consequently, to ensuring their functioning and stability. ⁵²

Against this backdrop, we analyze the survey results looking for answers to the following questions: Is climate change perceived as a financial threat? To what extent do people understand and accept green financial products? Is greenwashing recognized as a risk? What are the factors influencing people’s answers? Can we identify trends when we compare the latest results with those of previous surveys? The results of the OeNB Barometer survey confirm that the majority has a positive opinion and attitude about sustainable financial products and sustainable financial companies. People expecting climate change to have an increasing negative impact on their personal financial situation, representing most respondents, are more likely to be in favor of green finance. In addition, we analyze the specific answer frequencies with regard to demographic, socioeconomic and financial literacy-related characteristics. This study is a shorter version of a forthcoming full report that discusses the results of the survey in more detail. ⁵³

The remainder of this paper is structured as follows: Section 1 describes the survey, including relevant demographic data. In section 2, we present the key results of the survey regarding climate change and financial prospects as well as the environmental sustainability of financial products. Section 3 provides, on the basis of fundamental statistical variables, a descriptive analysis of factors having an impact on responses. Section 4 puts the findings into context, compares them with similar surveys, and aims to identify trends. Finally, in section 5, we draw tentative conclusions for researchers, supervisors and financial educators. Regression analysis in the annex corroborates the observations discussed in section 3.

1 Background information on the OeNB Barometer survey

The survey was conducted using two methods: 953 interviews were conducted as computer-assisted personal interviews (CAPI) at the homes of respondents, and the other 478 interviews took the form of online computer-assisted web interviews (CAWI). Survey participants were selected by stratified multistage clustered random sampling; additional participants were selected at random from a permanent IFES pool.

The following demographic characteristics were surveyed: gender, age, education, profession, social class (A to E), personal and household income, size of municipality, province, media preferences, and political preferences. ⁵⁴ We have weighted all results to remove effects like the overrepresentation of older cohorts in the dataset, which is due to the fact that compared to working people, senior citizens are more likely to be at home when contacted by interviewers. We are aware that the data contain many details that are beyond the scope of this short paper, and we will take a closer look at them in a full version.

2 Main survey results about green finance

The questions about the role of green finance are divided into two groups, with the first six questions relating more to opinions and the other eight relating more to attitudes. It is not easy to make this distinction, but it is useful: Opinions tend to be fact-based and related to specific situations, while attitudes tend to be of a more fundamental nature and often influence people’s behavior.

Chart 2 shows the questions relating to opinions, some of which can also be viewed as questions about sustainable finance literacy (Gangl et al., 2023):

1. About two-thirds of respondents say that the financial sector has a responsibility to contribute to the transition to a low-carbon economy. This seems reasonable because the financial sector allocates resources to the wider economy, which means it has an important impact beyond its direct carbon emissions, which are quite low compared to other sectors.
2. Greenwashing appears to be a concern for 60% of respondents, who say that the financial sector cultivates an image of sustainability only in order to maximize profits. Given that the word “only” is used in an exclusive manner, it is remarkable that so many respondents agree with this statement.
3. 58% of respondents, also quite a large majority, consider sustainable businesses to be more profitable in the long run, a statement on which we have been unable to a identify a clear consensus among researchers (Atz et al., 2023).
4. 45% view climate change as a financial risk, an opinion that is largely accepted by researchers, practitioners and supervisors. Only 18% of respondents take the opposite view.
5. 55% regard compliance with environmental standards mainly as a cost factor that reduces profits. The use of the word “mainly” shows a degree of inconsistency with statement 3 (sustainable businesses are more profitable).
However, a large majority of almost two-thirds give a negative answer to the normative control question about whether investors should focus more on profits than on protecting the environment.

Next, we will analyze the questions about attitudes, which can be seen in chart 3. They differ from the questions about opinions by using the first person to refer to respondents.

1. 52% consider it important that their insurance company phase out investments in coal. In fact, a large number of insurance companies are already committed to that goal, which puts them ahead of many banks. ⁵⁷
2. An almost equal number of respondents want their bank to be climate-neutral by the middle of the century. Indeed, more and more banks are already committing to the Paris climate targets. ⁵⁸
3. A relative majority of 48% do not want their money to be invested in fossil fuels.
4. 54% prefer financial companies with clear ethical and environmental positions.
5. A relative majority of 44% want to know whether their money makes a contribution to protecting the environment.
6. However, only 46% are prepared to make an extra effort to obtain the information they need to make sure that their investment complies with sustainability criteria. This question can hence be considered to be designed to assess consistency with the answer to the previous question.
7. Only a minority of 23% say that they have already chosen to invest in low-carbon and/or green financial products; the fact that 22% answer “neither agree nor disagree” suggests that they might have difficulty understanding the question. This may also be true for the 26% that do not answer the question.
As many as 29% of respondents say they are prepared to accept lower returns on money invested in sustainable, green and/or humanitarian projects. However, more than 40% are not prepared to do so.

3 What factors shape opinions and attitudes?

Various factors can influence people’s attitudes to and interest in sustainable financial products. We will now analyze several characteristics that, based on an analysis of data in table form, appear to be meaningful in explaining differences in attitudes to green finance. Chart 5 only shows those values of the variables that separate the samples closest to their respective medians. The horizontal axis shows the percentage deviations from the average survey result for the 14 questions on opinions and attitudes. ⁶⁰ In most cases, positive deviations can be interpreted as being pro-green finance. ⁶¹

1. The income level stands out as being particularly important. We are looking at everyone up to the middle-income group that has up to EUR 2,000 in monthly personal income. On average, the answers that this group gives are 9 percentage points more pro-green finance than those of the overall sample.
2. Saving patterns also seem to play a big role but might correlate with income. We show the group that is able to save at least EUR 300 a month, according to the survey. The average deviation that can be interpreted as a positive attitude amounts to 7.3 percentage points. ⁶²
3. The level of education has somewhat less of an impact. For example, respondents with upper secondary education diplomas have a positive deviation of 4.5 percentage points.
4. Next comes gender, as the answers that women give are more pro-green finance by 2.4 percentage points compared to the overall result.
5. Status of employment appears to play a minor role. People in employment show an average deviation of 1.9 percentage points.
6. Age does not seem to have much of an impact either. We find a marginally negative deviation in the responses from people under the age of 45 (–0.7 percentage points) despite positive deviations in some questions. This is in contradiction to frequent claims that many younger people, such as millennials and Generation Z, i.e. the key supporters of the environmental movement, have a stronger interest in sustainable and green investing. ⁶³ One possible explanation might be that younger people are mainly concerned about climate change affecting their quality of life and that they start to take a greater interest in business matters and personal finance only when they have fully entered the workforce and as their wealth grows.
The size of respondents’ city, town or village, i.e. the rural-urban variable, is equally unimportant. For respondents living in municipalities with a population below 5,000, we see a deviation by an average of –1.4 percentage points from the overall result. A striking finding is that residents of rural areas are less prepared to accept lower returns and see climate as less of a financial risk. Conversely, people in major cities appear to have a slightly more positive stance on green finance.

4 Comparison with similar surveys

Other surveys are not directly comparable to the OeNB Barometer survey analyzed here but do provide answers to three essential questions: To what extent are people aware of green finance? What motivates them to invest in green finance? And what is the expected impact of green finance? Gallup (2018 and 2021) found that even though awareness of sustainable financial products went up from 23% to 39%, a majority had still never heard of them. Regarding the motivation to make sustainable investments, an experimental study that Riedl and Smeets (2017) conducted in the Netherlands came to the conclusion that intrinsic social preferences (and reputation as well as, to a lesser extent, financial motives) are the main factor. This would also manifest itself in a willingness to accept lower yields, a phenomenon that was also observed in the OeNB Barometer (chart 3, final question). As for the impact of green finance, only 9% of Austrian respondents in a Eurobarometer survey (European Commission, 2020) believe that creating greener banking and insurance systems can be an effective way to address environmental problems. ⁶⁸

Similarly, the economists Kölbel et al. (2020) arrive at the conclusion that sustainable investing can promote good business practices but cannot “save the world” in the absence of appropriate political action. Doubts about its positive impact are not only due to greenwashing, i.e. companies more or less intentionally deceiving the public, but also due to gaps in the data and methodological complexity. This complexity is, among other things, due to the need for additionality, i.e. reductions in greenhouse gas emissions have to come on top of the decrease that would have occurred anyway in the absence of the climate action funded by sustainable investments. In addition, most investors would need to have pronounced green preferences in order to achieve a positive impact on the environment which could otherwise be canceled out by less ethical investors using arbitrage. All in all, the survey that we analyze shows that people are not very willing to accept lower returns to help the environment, which seems to indicate that most investors do not have the green preferences that would be required. However, negative attitudes to green finance can be due to two different motivations: one that is rooted in doubts about climate change and one that comes from the conviction that there are better ways to resolve the climate crisis. The regression analysis in the annex shows that positive attitudes to green finance are associated with respondents’ expectations that climate change will have a negative impact on their financial situation in the future. This also suggests that negative attitudes appear to be more strongly related to climate-skeptical motivations.

5 Conclusions for research, supervision and education

This study mainly focuses on attitudes toward those parts of the financial sector that – at least claim to – have already adapted to the challenge. But how relevant are disappointed expectations to financial supervisors? Given the small size of the market and low premiums on green financial products (greenium), a sudden repricing of assets appears unlikely to pose a substantial risk to the stability of the financial system. Nevertheless, we cannot entirely rule out that a green speculative bubble will burst, even though a brown bubble caused by stranded fossil assets seems to be a greater risk. Moreover, the risk that unfulfilled and unrealistic promises could alienate people from financial markets also has macroeconomic relevance. This means that consumer protection has implications for growth, distribution and innovation-promoting venture capital. ⁶⁹ Finally, the answers in the survey discussed in this paper also show contradictions and a lack of understanding among people. Are “green businesses more successful” or are “environmental standards mainly a cost factor”? While people want investors not to invest in “companies that harm the environment,” they “do not want to accept lower returns” either. In addition, many “neither/nor” and “no answer” responses do not make much sense in the context of the questions. We might revisit and interpret this imprecision in the forthcoming full version of this paper. This could require a separate analysis of the answers, depending on the coherence of the statements.

In conclusion, the results of the OeNB Barometer illustrate that attitudes to green finance are determined by a complex mix of personal convictions, economic resources and access to information. It appears that there is a considerable lack of knowledge and a gap between mere awareness and the willingness to take action. Sustainable-oriented financial literacy efforts, regulatory measures, such as the disclosures required by the EU, and voluntary labels, such as the Austrian Ecolabel, can help to build trust in effectively sustainable financial products and raise awareness of the associated risks.

References

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Annex

Regression analysis of factors influencing opinions and attitudes on green finance

• Overall index on opinions and attitudes: the sum of all questions measuring respondents’ opinions and attitudes, with one point being assigned for each “green” answer. There are a total of 13 questions, hence 13 is the maximum number of points in the index. In other words: the higher the score, the higher respondents’ affinity for green finance.
• Opinions subindex: the sum of the five questions we classify as opinion questions, i.e. questions that do not imply consequences in respondents’ behavior. There are a total of five questions, hence 5 is the maximum number of points in the index.
• Attitudes subindex: the sum of all eight questions we classify as attitude questions, i.e. questions that concern respondents’ personal views in relation to their behavior. There are a total of eight questions, hence 8 is the maximum number of points in the index.

Descriptive statistics on the overall index and subindices

The histograms show that by and large, the indices are evenly distributed, that is, there are no extreme concentrations that would affect a regression analysis. Looking at the histograms in greater detail, we see that the opinions subindex shows, on average, a stronger inclination toward “green” than the attitudes subindex. This seems plausible, given that, compared to opinions, attitudes imply a greater willingness to change one’s own behavior. For the opinions subindex, the median is 3 out of 5 points, while the median of the attitudes subindex is 4 out of 8 points. When we merge these two indices, we obtain the overall index, whose median is 7 out of 13 points, highlighting the aggregate perspective on respondents’ opinions and attitudes.

Regression results for the overall index and the subindices

The variable incomei is shown as a factor variable with six categories covering individual net income intervals from EUR 0 to EUR 900, EUR 900 to EUR 1,350, EUR 1,350 to 1,650, EUR 1,950 to EUR 3,000, and over EUR 3,000. Note that all categories, except for the first three ones, are significant at the 1% level. The EUR 1,950 to EUR 3,000 category has a particularly high impact on the index. This suggests that the index increases with rising incomes up to a net income of EUR 3,000. Beyond that, the index no longer increases but goes down, approaching the level seen for the EUR 1,650 to EUR 1,950 category. This underlines how income has an impact on the index up to a certain level; after that, we see some saturation.

The variable edui for education describes the highest level of education achieved by respondents. “Low secondary” is assigned to respondents who have completed their education after nine years of compulsory schooling or after that without a qualification for university entrance; “high secondary” is assigned to respondents who completed school with a qualification for university entrance; “tertiary education” is assigned to respondents with a university degree. Model 1 suggests that a university degree has a significantly positive impact on the overall index, while all other categories are not significant. This indicates that, according to model 1, a university degree is associated with a considerable positive shift in the index; by contrast, the other education variables do not have a statistically significant impact on the index.

The dummy variable female denotes female respondents. The coefficient of this variable is positive in all three models, statistically significant and shifts the index by one point in model 1.

The variable finlit represents financial literacy and describes an index which may take values between 0 and 3 based on three questions on financial literacy, with 0 standing for no financial literacy skills at all and 3 for very good financial literacy skills. Here, “medium,” that is, 2 out of 3 points, is significant, indicating a clearly positive impact on the index. This implies that, according to the model, better financial literacy skills are associated with a stronger positive shift in the index. That said, the level of financial literacy surveyed is very high overall, hence the differences between the categories are very small.

The variable msize represents the population of the municipality respondents live in. There are three categories: a population of 0 to 5,000, 5,000 to 1 million, and over 1 million (which is only Vienna). We see that the only positive coefficient is the one for the “over 1 million” category. Hence, a city of residence with more than 1 million inhabitants (i.e. Vienna) has a positive impact on the index in our model. All other categories do not appear to have a significant impact.

The variable climatepessimist is a dummy variable reflecting the attitude of those who expect that climate change will adversely affect their financial situation (chart 1). It is significant at the 1% level in all three models and has a higher positive impact on the index than gender or a university degree.

Except for the regressions shown in table A1, we have conducted several regression variants excluding insignificant indicators (e.g. whether respondents have savings). ⁷¹ We did not find substantial changes in the coefficients and significance levels, which we consider to be indicative of the robustness of the results shown in the table.

In sum, the empirical results essentially support our descriptive analysis in section 3. ⁷² Income and education level have a high and significant impact on opinions and attitudes, with women tending toward greener attitudes. Age is not significant in all three models; financial literacy and the availability of savings seem to have a small influence on respondents’ attitudes. What does seem to have a considerable impact (independent of all variables mentioned), by contrast, is whether people fear their financial situation might be adversely affected by climate change in the medium term.

Table A1: Regression results for three indices  

	Dependent variable
Term	Total index, model 1 (1)	Opinion index, model 2 (2)	Attitude index, model 3 (3)
age	0.028	0.003	0.025
	(0.037)	(0.013)	(0.028)
age^2	–0.0003	0.0001	–0.0003
	(0.0003)	(0.00001)	(0.0003)
income 0-900	0.433	0.005	0.428
	(0.868)	(0.354)	(0.694)
income 900-1350	0.418	–0.208	0.626
	(0.736)	(0.308)	(0.619)
income 1350-1650	1.258	0.165	1.094*
	(0.765)	(0.311)	(0.630)
income 1650-1950	1.882**	0.301	1.580**
	(0.767)	(0.303)	(0.629)
income 1950-3000	2.670***	0.487	2.183***
	(0.726)	(0.296)	(0.603)
income 3000+	2.067***	0.545*	1.522**
	(0.791)	(0.318)	(0.656)
low secondary	–0.109	–0.108	–0.001
	(0.365)	(0.144)	(0.286)
high secondary	0.201	0.063	0.138
	(0.374)	(0.149)	(0.287)
tertiary education	1.128*	0.354*	0.775**
	(0.504)	(0.190)	(0.386)
female	1.019***	0.300***	0.720***
	(0.263)	(0.098)	(0.196)
finlit low	1.251	0.653	0.599
	(1.214)	(0.478)	(0.862)
finlit medium	2.420**	0.825**	1.595**
	(1.076)	(0.409)	(0.756)
finlit high	1.838*	0.673*	1.165
	(1.069)	(0.404)	(0.749)
msize 5000-1Mio	0.086	–0.010	0.095
	(0.294)	(0.109)	(0.218)
msize 1 Mio+	0.420	0.223**	0.196
	(0.309)	(0.112)	(0.242)
climatepessimist	1.805***	0.664***	1.141***
	(0.259)	(0.098)	(0.197)
constant	0.104	0.807	–0.702
	(1.365)	(0.541)	(1.013)
Observations	1,209	1,209	1,209
Log likelihood	–3,352.349	–2,148.086	–3,012.238
Akaike information criterion	6,742.698	4,334.171	6,062.476
Source: Authors’ calculations.
Note: *p<0.1; **p<0.05; ***p<0.01.

Key financial indicators

Macroeconomic indicators for Austria

Table A1: Bank lending  

	2017	2018	2019	2020	2021	2022	H1 23
%
Loan growth (year on year): households	3.4	3.5	4.2	3.6	5.3	3.5	–0.3
Loan growth (year on year): residential real estate	4.8	4.4	6.1	5.5	6.9	5.0	0.0
Loan growth (year on year): corporations	4.9	6.9	6.2	5.0	8.7	9.2	6.6
	% of total loans
Share of variable rate loans (outstanding): households	91	69	65	60	57	51	47
Share of variable rate loans (outstanding): corporations	83	72	70	69	67	67	65
Share of variable rate loans (new lending): households	56	55	51	46	47	59	55
Share of variable rate loans (new lending): corporations	83	81	82	77	86	85	84
Source: OeNB.

Economic indicators

Selected economic measures

Interest rates and exchange rates

Consumer prices

Economic sector breakdown of households

Economic sector breakdown of nonfinancial corporations

Property market

Table A2: Debt ratios  

	2017	2018	2019	2020	2021	2022	H1 23
	%
Household debt (relative to net disposable income)	90.7	90.3	90.1	94.7	94.4	89.9	84.1
Corporate debt1 (relative to gross operating surplus2)	447.1	453.4	457.8	460.8	469.2	431.5	407.3
Source: OeNB.
1 Short- and long-term loans, money and capital market instruments.
2 Including mixed income of the self-employed.

Indicators for the Austrian banking sector

Table A3: Consolidated banking data  

	2017	2018	2019	2020	2021	2022	H1 23
	EUR billion
Total assets	949	986	1,032	1,136	1,197	1,200	1,232
Loans	668	704	744	752	787	814	836
Shares and debt instruments	139	138	137	143	147	155	170
Cash balance and deposits at central banks	71	75	75	164	186	161	157
Deposits by nonbanks	559	584	615	656	686	709	717
Deposits by credit institutions	101	103	101	102	106	106	131
Debt instruments issued	120	141	150	153	152	163	186
Profit	6.6	6.9	6.7	3.7	6.1	10.2	7.3
Operating income	22.8	24.0	25.0	24.8	25.8	31.6	18.3
Operating costs	14.8	15.7	16.7	16.5	16.8	18.7	9.2
Operating profit	8.1	8.4	8.3	8.2	9.0	12.9	9.1
Risk costs	1.0	0.4	1.0	3.7	1.4	2.7	0.8
Key ratios	%
Common equity tier 1 (CET1) ratio	15.6	15.4	15.6	16.1	16.0	16.3	16.6
Leverage ratio	7.3	7.5	7.6	7.4	7.7	7.9	7.9
Return on assets (annualized)	0.8	0.8	0.7	0.4	0.6	0.9	1.3
Cost-to-income ratio	65	65	67	67	65	59	50
Nonperforming loan (NPL) ratio1	3.4	2.6	2.2	2.4	2.1	2.1	2.0
Coverage ratio	52	51	49	49	48	46	45
Liquidity coverage ratio (LCR)	155	147	142	174	175	157	161
Net stable funding ratio (NSFR)	119	120	119	129	128	124	126
Source: OeNB.
1 As of 2020, the NPL ratio excludes cash balances at central banks and other demand deposits.

Table A4: Unconsolidated banking data1  

	2017	2018	2019	2020	2021	2022	H1 23
	EUR billion
Total assets	815	855	885	974	1,024	1,014	1,023
Loans	596	627	654	669	700	730	716
Shares and debt instruments	94	93	94	95	93	104	126
Cash balance and deposits at central banks	42	51	50	123	141	102	104
Deposits by nonbanks	403	426	444	474	496	505	510
Deposits by credit institutions	164	168	166	217	240	213	201
Debt instruments issued	117	128	137	140	140	160	184
Profit	4.9	5.7	4.8	2.7	6.5	5.0	6.6
Operating income	19.5	19.4	19.7	19.3	21.2	23.7	12.9
Operating costs	12.9	13.3	14.2	13.6	14.2	14.0	5.8
Operating profit	6.6	6.1	5.5	5.7	6.9	9.7	7.1
Risk costs	0.9	0.3	0.2	2.5	–0.4	3.6	–0.1
Key ratios	%
Return on assets (annualized)	0.6	0.7	0.6	0.3	0.7	0.5	1.3
Cost-to-income ratio	66	68	72	71	67	59	45
Nonperforming loan (NPL) ratio (Austria)	2.5	2	1.7	1.5	1.4	1.3	1.4
Coverage ratio (Austria)2	60	62	61	68	70	74	71
Liquidity coverage ratio (LCR)	153	144	142	174	171	155	158
Net stable funding ratio (NSFR)	118	120	120	129	129	124	127
Source: OeNB.
1 As of 2023 and due to reporting changes, comparability to previous years’ data is limited.
2 Total loan loss provisions as a percentage of NPLs in domestic business.

Table A5: CESEE subsidiaries  

	2017	2018	2019	2020	2021	2022	H1 23
	EUR billion
Total assets	206	207	223	234	271	279	294
Loans	137	147	161	165	186	184	196
Shares and debt instruments	38	37	38	42	48	49	55
Cash balance and deposits at central banks	26	18	18	22	30	39	36
Deposits by nonbanks	150	154	167	178	205	211	220
Deposits by credit institutions	25	23	22	16	18	18	22
Debt instruments issued	4	4	5	11	15	12	16
Profit	2.6	2.9	2.8	1.9	3.0	5.2	2.7
Operating income	7.9	7.9	8.4	8.2	8.9	12.8	6.5
Operating costs	4.2	4.1	4.4	4.4	4.6	5.1	2.9
Operating profit	3.7	3.8	4.1	3.8	4.3	7.7	3.6
Risk costs	0.3	0.2	0.5	1.3	0.5	1.0	0.3
Key ratios	%
Return on assets (annualized)	1.3	1.4	1.3	0.8	1.2	1.9	1.9
Cost-to-income ratio	53	51	52	54	52	40	44
Nonperforming loan (NPL) ratio1	4.5	3.2	2.4	2.6	2.2	2.1	1.9
Coverage ratio	61	64	67	67	64	64	63
Source: OeNB.
1 As of 2020, the NPL ratio excludes cash balances at central banks and other demand deposits.

Structural indicators

Table A6: Financial stress indicators  

	2017	2018	2019	2020	2021	2022	H1 23
	Indicator value
Austrian financial stress indicator (AFSI)	–0.71	–0.24	–0.72	–0.57	–0.66	0.67	–0.03
Composite indicator of systemic stress (CISS)	0.03	0.07	0.02	0.10	0.05	0.33	0.26
Source: OeNB, ECB.

Indicators for other financial intermediaries in Austria

Mutual funds

Pension funds

Insurance corporations